S&P put MultiCat Mexico Class C notes on negative watch post-Patricia


The $100m tranche of notes from the MultiCat Mexico Ltd. (Series 2012-1) Class C catastrophe bond, which are exposed to a loss due to recent hurricane Patricia’s impact on Mexico, have now been placed on CreditWatch with negative implications by S&P.

As a result of the Category 5 landfall near Manzanillo, Mexico, rating agency Standard & Poor’s explained that it expects the sponsor “Swiss Reinsurance Co. Ltd. to submit an event notice to the calculation agent, AIR Worldwide Corp.”

S&P said that the placement of the $100m of MultiCat Mexico Class C cat bond notes on CreditWatch, indicates “a triggering event may have occurred.”

The rating agency explains:

Based on the event definition in the transaction documents, a triggering event occurs when the central pressure is equal to or lower than 932 millibars. We reviewed an update from the National Hurricane Center that indicated a reading of 920 millibars at one station located at 19.4N 105.0W, which falls within the covered area. The transaction documents state that noteholders would lose 50% of their principal amount if the central pressure is between 932 and 920 millibars and 100% if lower than or equal to 920 millibars.

So, as we’ve explained in our coverage of hurricane Patricia’s landfall on Mexico, at the current estimated pressure levels the notes would seem to be a 100% loss. However, we must wait for the final calculation agent report, which could require the post-event tropical cyclone report from the NHC to be released before we will know exactly how much investors will lose.

S&P explains that it hopes to resolve the CreditWatch position within 15 days of the “hurricane event parameters date.” This is defined as either the “release date of the first tropical cyclone report containing all information necessary to determine if Hurricane Patricia is a covered event, or 120 days after Patricia made landfall.”

Hence it could be some time before the final decision is made, depending on how quickly the National Hurricane Center can release its first report on Patricia.

If it transpires that the MultiCat Mexico 2012 Class C catastrophe bond notes have been triggered, which seems certain given the pressure levels as it is hard to believe these are not at least a 50% loss, S&P will downgrade their rating.

“If a triggering event occurred, we will lower our rating to ‘D (sf)’, and if it did not occur, we will affirm our rating at ‘B- (sf)’,” S&P explained.

The cat bond market has priced the notes for a total loss, with most secondary pricing sheets marking them right down at 10 points or lower. So investors seem convinced that a 100% loss is coming. But wait the market must, as until the information deemed necessary to make the calculation becomes available a decision cannot be taken.

We’ll update you as things become clearer.

Also read: MultiCat Mexico cat bond faces hurricane Patricia loss, but how much?

You can read all about the MultiCat Mexico Ltd. (Series 2012-1) catastrophe bond in the Artemis Deal Directory. It’s also worth noting that Mexico plans to renew its MultiCat 2012 cat bond, which matures in December.

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